Question 1

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Accepted Answer

Net capital losses can generally only be carried forward to offset capital gains in future years, not carried back to previous years, for both corporate and individual taxpayers.

Question 2

JG Inc.recognized $690,000 ordinary income,$48,000 net Section 1231 gain,and $77,000 net capital loss this year.JG's taxable income is $690,000.

Accepted Answer

The net Section 1231 gain and net capital loss offset each other, leaving only the $690,000 ordinary income to be included in taxable income.

Question 3

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Accepted Answer

Under the IRS rules, if the accumulated depreciation (MACRS) is equal to or greater than the gain, the entire gain is recaptured as ordinary income under the depreciation recapture rules.

Question 4

CBM Inc.realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1994.Accumulated MACRS depreciation on the complex was $311,800.The entire gain is characterized as Section 1231 gain.

Accepted Answer

The answer of CBM Inc.realized a $429,000 gain on sale...

Question 5

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

Accepted Answer

This is because Section 1231 gains and losses are determined at the end of the year by netting all Section 1231 gains against all Section 1231 losses. Therefore, the computation cannot be done until the year is over and all relevant transactions have been completed.

Question 6

Milton Inc.recognized a $1,300 net Section 1231 loss in 2015.If Milton recognizes a $5,000 net Section 1231 gain in 2016,it must characterize $1,300 as ordinary income.

Accepted Answer

According to IRS rules, any net Section 1231 losses recognized in the five preceding tax years must be recaptured as ordinary income in the year in which the taxpayer has a net Section 1231 gain. Therefore, Milton must recapture the $1,300 loss from 2015 as ordinary income in 2016, reducing the amount of the net Section 1231 gain that can be taxed at the lower capital gains rate.

Question 7

Langtry Corporation recognized $798,000 ordinary income,$13,000 net Section 1231 loss,and $6,000 net capital loss this year.Langtry's taxable income is $785,000.

Accepted Answer

The net Section 1231 loss and net capital loss can be used to offset the ordinary income, resulting in a taxable income of $785,000.

Question 8

Mr.Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1994.Accumulated MACRS depreciation on the complex was $311,800.The entire gain is characterized as Section 1231 gain.

Accepted Answer

Section 1231 gain refers to gains from the sale of business property, which includes residential rental property held for investment purposes. The fact that the property was subject to MACRS depreciation also supports its classification as business property. Therefore, the entire gain realized by Mr. Jason on the sale of the apartment complex would be characterized as Section 1231 gain.

Question 9

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years.If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more,the entire loss is ordinary.

Accepted Answer

The answer of Stone Company recognized a $7,700 loss on...

Question 10

Tullia Inc.recognized $500,000 ordinary income,$22,600 net Section 1231 gain,and $6,000 net capital loss this year.Tullia's taxable income is $522,600.

Accepted Answer

Tullia's taxable income would be $516,600 because the $6,000 net capital loss would be subtracted from the sum of the ordinary income and the net Section 1231 gain ($500,000 + $22,600 - $6,000).

Question 11

If a taxpayer sells business realty that was depreciated using the straightline method,the entire gain is characterized as Section 1231 gain.

Accepted Answer

The answer of If a taxpayer sells business realty that...

Question 12

Because land is nondepreciable,it is always a capital asset.

Accepted Answer

Land is nondepreciable, but not all land qualifies as a capital asset. Land used in a trade or business or held for investment qualifies as a capital asset, but land used for personal purposes does not.

Question 13

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

Accepted Answer

The general rule is actually the opposite - a net Section 1231 gain is treated as a capital gain and a net Section 1231 loss is treated as ordinary income.

Question 14

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

Accepted Answer

This is correct according to the Internal Revenue Code. If an individual or corporation has capital losses that exceed capital gains, they can deduct up to $3,000 of those losses against ordinary income. Any remaining losses can be carried forward to future tax years.

Question 15

The sale of business inventory always generates ordinary income or loss.

Accepted Answer

The sale of business inventory is considered an ordinary course of business and therefore generates ordinary income or loss.

Question 16

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Accepted Answer

The answer of Both corporate and individual taxpayers may be...

Question 17

Verno Inc.purchased business equipment in March and sold it in November.Verno's gain or loss recognized on the sale is ordinary.

Accepted Answer

If Verno Inc. purchased the business equipment for use in their ordinary course of business or trade, any gain or loss on the sale would be considered ordinary income or loss. Therefore, the gain or loss recognized on the sale is ordinary in this scenario.

Question 18

Ms.Cregg has a $43,790 basis in 2,460 shares of ABD Inc.common stock.ABD recently declared bankruptcy and announced that its common stock is worthless.As a result,Ms.Cregg can recognize a $43,790 ordinary loss.

Accepted Answer

Ms. Cregg would recognize a capital loss, not an ordinary loss, from the worthlessness of her ABD Inc. common stock.

Question 19

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Accepted Answer

If Abada determines that the AbWest stock is worthless, it can recognize a $925,000 ordinary loss under the rules of Section 165(g)(1) of the Internal Revenue Code.

Question 20

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

Accepted Answer

The answer of The abandonment of business equipment with a...

Quiz 8: Property Dispositions